What your options are and how we can help
There are many different ways of saving for your retirement; a tax-efficient way is to invest in a pension. Pensions allow you to save during your working life to provide you with an income in retirement. Personal contributions generally qualify for tax relief at your highest marginal rate. You can normally withdraw up to a quarter of the pension fund as a tax-free lump sum when you reach retirement, and with the remainder draw an income.
Here are the different types of pension available.
You contribute to the state pension through your national insurance contributions. When you reach the state retirement age, you'll receive a weekly income from the government based on the contributions you’ve paid. For most people, this weekly amount won't be enough to live the lifeystyle they've become accustomed to in retirement so additional income will be needed.
An occupational or company pension is a scheme offered by an employer to provide pensions for its employees. You don’t have to join but in many cases you'd be foolish not to as most companies make contributions on behalf of their employees – often matching the contributions the employee makes or providing a percentage of the employee’s salary. If you're employed, you'll automatically be enrolled into your employer’s pension scheme at some time before 2016. You have the option to opt-out of the scheme but if you do, you'll lose your entitlement to your employer’s contributions.
"From 2012 to 2016 the majority
of employees will be automatically
enrolled into a pension scheme
supported by their employer."
See our Pensions eGuide
The most generous company pension schemes are defined benefit schemes. They guarantee to pay out a certain level of income based on the number of years you work for the company and your career average or final salary. They used to be commonplace but are increasingly only found in the public sector.
It's more common now for an employer to offer a defined contribution scheme where contributions are invested on your behalf so that when you reach retirement a capital amount will be available to provide your pension. The amount you get at retirement will depend on how well these investments perform and are not guaranteed.
A stakeholder pension is a form of personal pension that allows you to pay regular or lump sum contributions which are then invested. The amount you get at retirement will depend on how much you pay in, how well the investments perform and how much you decide to draw from your pension fund each year when you retire. Stakeholder pensions are typically offered by insurance companies, have low costs and a limited investment range. TD Direct Investing does not offer a stakeholder pension.
A personal pension is another form of pension that allows you to pay regular or lump sum contributions which are then invested. The amount you get at retirement will also depend on how much you pay in, how well the investments perform and how much you decide to draw from your pension fund each year when you retire. Personal pensions also tend to be offered by insurance companies with investment choices limited to the insurance company’s own funds. In some cases, insurers have now extended the range of funds available to include those of external fund managers. TD Direct Investing does not offer a standard personal pension.
"Even if you don’t pay any income tax you can still put money into a personal pension and benefit from basic rate tax relief..."
See our Pensions eGuide
Self-Invested personal pension (SIPP)
A SIPP is a type of personal pension and works in a similar way to a standard personal pension. The main difference is that a SIPP offers more flexibility and choice over the type of investment that can be held, usually offering a wide range of investment choice and not limited to a range of funds. A SIPP is one of the few pensions that allow you direct access to equity markets in the UK and overseas.
With the TD SIPP, you can create your own personal retirement strategy by choosing from our full range of investment options: UK & international equities, bonds and gilts, investment trusts, unit trusts, OEICs, REITS and Exchange Traded Funds. Through our easy-to-use online platform you can trade in and monitor your portfolio, and there's no initial set-up fee.
Do you know how much you need to retire with? Many people don't. After all, it's not an easy question to answer. But until you know a figure for the total income you'll need to support the lifestyle you'd like in retirement, you won't be able to put realistic plans in place to achieve it.
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